Now I'd love to talk about the ins and outs of the cheating but here isn't really the place for it (there's plenty of poker forums for that). What I'd like to focus on is the reputation management and in particular the use of social media by the poker community to get this story out. Here's a very short summary of events:

Cheating is suspected by various high stakes poker players at Absolute Poker due to some incredibly dubious play over enough hands to make it statistically unlikely that it was just 'luck'.

Investigation and general speculation becomes a very hot topic at the major poker forums, at which point many players are sure that cheating has occured but the evidence is difficult to understand for non poker players.

Players feel strongly enough about the issue that www.absolutepokercheats.com is created.

More evidence is uncovered about the cheating which now proves beyond doubt that cheating has occured. The evidence is clear and you can even watch videos on youtube of one of the players cheating during a tournament (note you still need some poker knowledge to understand this).

Absolute Poker denies anything has happened but voluntarily subjects itself to a gambling audit (note that some doubts were raised about exactly how independent this audit would be since the company that owns the auditing company has ties to Absolute)

The poker community rallies together, the major poker forums remove Absolute Poker adverts.

Absolute Poker enters into talks with the prominent figures in online poker. Some questions begin to get answered but nothing concrete is found out.

This whole process, from rumours starting to evidence being uncovered to Absolute Poker finally admitting there was a problem took over a month. In that time, the SERPs contain some harmful pages, PPC ads have appeared on their brand name, their name has been slandered all over the blogosphere and they have had terrible exposure on social media sites. If you were Absolute when would you have stepped in?!

In my opinion this whole affair was handled very badly by Absolute - they just sat back and flatly denied that anything untoward had happened. They claimed to have "investigated this themselves and found no evidence of cheating", and stuck to that party line until people with some serious detective skills unearthed the truth. If Absolute had stepped in earlier and engaged with the online communities I think they could have seriously reduced the blow. I'm not saying nothing would have happened - since a security breach like this involving $700,000 was always going to create a stir but by listening, responding and engaging with the community I think they could have avoided a large part of the damage. By the time this is over, not only will they have left a sour taste in the mouth of anyone who dealt with them but they will also have negative results in the SERPs and a brand in tatters.

Update: I replaced the first screenshot with a better one which fits on the page.